Effective January 4, 2022, New York State amended its wage theft laws which makes contractors and construction managers jointly and severally liable for wages and benefits owed to employees of its subcontractors.
Specifically, pursuant to New York Labor Law Section 198-e (NYLL 198-e) general contractors, prime contractors, and construction managers (hereinafter “contractors”) that hire a subcontractor directly are now strictly liable for that subcontractor’s failure to pay its employees standard wages, prevailing wages, and overtime. Accordingly, wage actions may be brought directly against the contractor by employees of the subcontractor, as well as a union, another representative acting on the employee’s behalf, or the New York State Attorney General’s office. The limitation period for such claims against the contractor is three (3) years, while the general limitation period for wage claims is six (6) years.
Notably, the law applies to contracts entered into, renewed, modified, or amended with a subcontractor on or after the effective date of the new law. Thus, any amendment or revisions to applicable construction contracts which occur after January 4, 2022, even changes in the contract unrelated to issues concerning subcontractors or wages, may trigger liability for contractors. That said, the law excludes from the definition of “construction contracts”:
a) home improvement contracts with the owner of an occupied dwelling and
b) construction contracts for one or two family dwelling units, except where such contractor or contracts involve the construction of more than ten (10) units at one project site.
In connection with the aforementioned changes to the New York Labor Law, and to ensure that wage and hour records of subcontractors are properly maintained, Section 756-f of the New York General Business Law (GBL 756-f) now requires subcontractors, at a contractor’s request, to provide certified payroll records containing:
- Information regarding wages and benefits paid to workers;
- The names of all subcontractors’ employees, and those of any sub-subcontractors working on the project, including the names of all those designated as independent contractors;
- The anticipated contract start date and duration of the work under the subcontract;
- The name of the local union(s) with whom the subcontractor and each sub-subcontractor is a signatory contractor (if applicable);
- The name, address, e-mail address, and phone number at which the subcontractor can be reached.
Given these new changes to labor law making general contractors and other upstream contractors strictly liable for the subcontractor’s failure to pay its employees proper wages and benefits, contractors may consider withholding payment from subcontractors who fail to provide the above referenced information for each employee on the job site, and to consider such compliance in selecting subcontractors for future projects. In that regard, contractors should take the following precautions and safeguards to monitor their subcontractors’ compliance with paying their employees proper wages and benefits in order to avoid potential liability by the contractor:
- Contractors should document all requests to their subcontractors for employee information, as well as any responses to such requests. Contracts with subcontractors should clearly state that subcontractors must provide all relevant employee wage information as outlined in GBL 756-f.
- While NYLL 198-e prohibits contracts that prevents the subcontractors’ employees from exercising their rights to collect lost wages and benefits, contractors should include in all their subcontracts provisions that subcontractors shall indemnify the contractor for all damages brought an employee of the subcontractor against the contractor under NYLL 198-e, including for interest, liquidated damages, attorneys fees and costs, resulting from the subcontractor’s failure to comply with wages and benefits due its employees under the New York Labor Law.
- Contractors should retain their subcontractors’ employee and related records for a minimum of three (3) years following completion of the operative construction contract.
As you can see, these recent changes to the New York Labor law can have significant implications with respect to a contractor’s potential liability relating to wage claims by the subcontractor’s employees. Thus, general contractors, construction managers, and other upstream contractors should immediately review their contracts and relationships with subcontractors to ensure compliance with this new law. If you would like further guidance in that regard, please do not hesitate to contact Michael Fleishman, Esq. at Goetz Fitzpatrick, LLP to discuss further.
Goetz Fitzpatrick LLP has been offering clients insightful solutions throughout the New York Metropolitan area since 1967. The firm provides its clients with expertise in the areas of Construction and Real Estate, Trusts & Estates Administration & Litigation, Commercial Litigation, Corporate, Bankruptcy, and Labor & Employment. The firm’s office is located at One Penn Plaza, Suite 3100, New York, NY 10119, Telephone 212 695 8100, [email protected], www.goetzfitz.com. You can learn more about Goetz Fitzpatrick on: LinkedIn | X (Twitter) | Soundcloud | YouTube | Facebook | Instagram
